Opinion by: Nic Puckrin, founder of Coinbureau
The biggest extermination Event in the history of the crypto market, which wiped out at least $ 19 billion in long positions after US President Donald Trump announced punitive tariffs on China late on October 10, exposed an ugly side of this nascent market: its vulnerability to insider trading.
Onchain data shows that a significant short position was taken in hyperliquid just half an hour before the big announcement. When the market falls, this trader Bagged $ 160 million.
Speculation aside, this is admittedly just one of many examples of potential insider trading in the digital asset space, which plagues the industry. In fact, the token launch models themselves deserve scrutiny, as they often reward venture capital firms with pre-launch allocations that they sell on the listing, to the detriment of retail traders. For all its progress, Crypto remains the “wild west” – largely unregulated and open to market manipulation.
This massive problem is not alone. It is as old as the markets themselves. Financial regulations have tried and failed for decades to end it. This is a problem that has nothing to do with blockchain technology: it is simply a manifestation of human greed.
Blockchain Technology’s transparency has exposed the market’s dirty laundry, serving as a wake-up call for regulators to take serious action to clean it up.
Policies that favor the favored
The history of financial markets is Rife with instances of insider trading and market manipulation which was not punished. The most significant one is the global financial crisis itself, whose main actors were not punished for their extensive dirty dealings despite a body of evidence. This includes top brass at Lehman brotherswho rushed to sell their stock as the company collapsed – all because prosecutors failed to prove intent under existing laws.
Related: How an anonymous trader made $192m shorting one of the biggest crypto crashes
In the following years, the SEC reportedly opened more than 50 investigations into the derivatives markets, including insider trading involving credit default swaps and the potential impact on the Greek government bond crisis of 2009-2012. But no convictions will come. And that’s thanks, at least in part, to the fact that the law doesn’t cover debt derivatives. And the surprising part is, in the US at least, it still isn’t.
There have been very few changes to insider trading regulations around the world. Almost a century since they were first introduced under the US Securities Exchange Act of 1934, the changes implemented have been more of a hindrance than a help. In the US, Rule 10B5-1.
A good example is the 2016 SEC v. The landmark case, which tested the limits of insider trading law so much that it took eight years to reach a conviction. Matthew Panuwat, a senior executive at Medivation – a biotech firm acquired by Pfizer – bought call options on rival Incyte Corp after learning about the takeover. His bet that the rival’s shares would rise led to a personal profit of more than $100,000.
The SEC ignores insider trading
While the Letter was later convicted, so-called “shade trading” remains a nascent area of enforcement for the SEC, and it is still technically not written into law. But it should be. The laws as they stand are not fit for purpose in a market that doesn’t look as good as it did 50 years ago, so it’s time for an upgrade.
This means officially expanding the scope of the law to cover a wide range of investment instruments, including derivatives and digital assets, and updating the definition of insider information to include government channels, policy briefings and other means. It also means strengthening pre-disclosure and cooling-off periods for public officials and assistants, similar to existing 10B5-1 reforms.
Moreover, Implementation needs to be significantly faster. Eight years for a belief is nowhere near a world where billions can disappear in seconds.
Regulators need to come down hard on insider trading with full force, using modern tools that frauds are against them.
The crypto market is certainly no exception. It’s high time the powers that be investigated token launches, exchange listings and the deals that fuel the digital asset fever. Honest actors in the space will simply accept it.
Casting it as a crypto-specific problem, however, would be a big mistake. Until the law is changed and the loopholes are closed, insiders will continue to exploit them, and trust in the system will remain eroded.
When criminals begin to fear the consequences of their actions things will truly change, both in traditional and digital asset markets.
Opinion by: Nic Puckrin, founder of Coinbureau.
This article is for general informational purposes and is not intended to be and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
